EMI: Meaning, Formula, Example and RBI Rules on Rate Changes

Written by India Customer Care editorial team Facts checked against official sources on 31 Oct 2026 Updated 31 Oct 2026

Independent guide. We are not part of RBI, NPCI or any bank, and we never ask for your account details, PIN or OTP.

EMI stands for Equated Monthly Instalment. It is the fixed amount you pay every month to repay a loan. Each EMI has two parts: interest and principal. Early EMIs are mostly interest; later ones are mostly principal. On a floating-rate loan, a rate change can alter your EMI, your tenure or both. Always check your loan's KFS and sanction letter.

Full form

Equated Monthly Instalment

Made of

Interest + principal

Formula

E = P·r·(1+r)ⁿ ÷ ((1+r)ⁿ − 1)

Sample

₹10 lakh, 9%, 20 years → about ₹8,997 a month

Repo rate

5.50% (from 7 Oct 2026)

Where to find yours

KFS, sanction letter, repayment schedule

Prepayment charge

None on floating-rate personal loans to individuals*

Usually paid by

NACH auto-debit or UPI AutoPay

*For loans not taken for business, under RBI rules. Details in Prepaying.

What is an EMI?

RBI defines an Equated Periodic Instalment as a fixed repayment, made up of principal and interest, paid at regular intervals for a fixed number of times so that the loan is fully repaid. When the interval is a month, it is called an EMI.

• Interest part: one month's interest on the loan amount still outstanding.
• Principal part: whatever is left of the EMI. It reduces what you owe.
• As the balance falls, the interest part shrinks and the principal part grows, though the EMI stays the same.

You will see EMIs on home, vehicle, personal and education loans, consumer-durable loans, and credit card purchases converted into instalments.

The EMI formula

E = P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1)

• P = loan amount (principal)
• r = monthly interest rate = yearly rate ÷ 12 ÷ 100. For 9% a year, r = 0.0075.
• n = number of monthly instalments. For 20 years, n = 240.

Use months for n and the monthly rate for r; mixing in years gives a wrong answer. Your lender's figure can differ by a few rupees because of rounding and the exact date of the first EMI.

Worked example: ₹10 lakh at 9% for 20 years

Sample loan: P = ₹10,00,000, r = 9 ÷ 12 ÷ 100 = 0.0075, n = 240.

1. (1.0075)²⁴⁰ ≈ 6.0092
2. E = 10,00,000 × 0.0075 × 6.0092 ÷ (6.0092 − 1) ≈ ₹8,997 a month
3. Total paid over 240 months ≈ ₹21,59,342, so total interest ≈ ₹11,59,342, more than the loan itself.
4. First EMI: interest ₹7,500 (0.75% of ₹10 lakh) and principal only ₹1,497.

After 10 years (half the tenure) you still owe about ₹7.1 lakh, 71% of the loan. That is why prepaying early saves the most interest. Your lender's repayment schedule (amortisation schedule), which comes with the KFS, shows this split for your own loan.

Check your KFS and sanction letter

For retail and MSME term loans sanctioned on or after 1 Oct 2024, every bank and NBFC must give you a Key Facts Statement before you sign. It shows:

• the APR: the yearly cost of the loan including interest and all charges;
• the repayment schedule over the whole tenure;
• all fees and charges, including penal charges. A fee not in the KFS can't be charged later without your explicit consent.

The KFS stays valid for at least three working days (for loans of seven days or more), so you have time to compare. Credit card dues are exempt from these KFS rules.

When the interest rate changes

On a fixed-rate loan your EMI doesn't change. On a floating-rate loan, the rate moves with a benchmark. Since 1 Oct 2019, banks' new floating-rate personal and retail loans must be linked to an external benchmark such as RBI's repo rate, and the rate must be reset at least once every three months. Older loans linked to MCLR or base rate, and many NBFC loans, follow the lender's own benchmark; your sanction letter says which applies.

RBI's rules for EMI-based floating-rate personal loans (circular of 18 Aug 2023; applied to new and existing loans by 31 Dec 2023):

• At sanction, the lender must explain how a benchmark change could change your EMI, tenure or both.
• Any increase in EMI or tenure must be told to you immediately.
• At reset, you can choose a higher EMI, a longer tenure or a mix of both, and you can prepay in part or in full at any time.
• Switch to fixed rate: since 1 Oct 2025, offering this is at the lender's option, under its Board-approved policy. Ask your lender.
• No negative amortisation: a longer tenure must not leave the EMI too small to cover the interest, which would make your balance grow.
• Charges for switching or exercising these options must be disclosed in the sanction letter.
• Quarterly statement showing principal and interest recovered so far, EMI, EMIs left and the APR.

Sample: rate rises by 0.25 points after your 12th EMI

Same sample loan. After 12 EMIs you owe ₹9,81,273 with 228 months left. Here is what each choice means:

Prepaying or foreclosing your loan

Prepaying means repaying part of the loan early; foreclosing means closing it fully. Under RBI's Pre-payment Charges on Loans Directions, 2025, for floating-rate loans sanctioned or renewed on or after 1 Jan 2026:

• Loans to individuals not for business (home, car, personal loans): no pre-payment charge from any bank, co-operative bank, NBFC or all-India financial institution.
• This holds whatever the source of the money, for part or full prepayment, with no minimum lock-in period.
• Dual or special-rate loans (fixed for a period, then floating): the rule applies if the loan is on a floating rate when you prepay.
• Business loans to individuals and micro and small enterprises: no charge at most commercial banks; at small finance banks, regional rural banks and some co-operative banks and NBFCs, no charge on loans up to ₹50 lakh.
• Fixed-rate loans: charges, if any, follow the lender's policy and must be based on the amount prepaid.
• Whether pre-payment charges apply must be stated in the sanction letter, loan agreement and KFS. Undisclosed charges, or fees waived earlier, can't be charged at prepayment.

For older loans: since 7 May 2014 banks have not been allowed to charge foreclosure or pre-payment penalties on floating-rate term loans to individual borrowers.

How EMIs are paid: NACH and UPI AutoPay

Most lenders collect EMIs automatically from your bank account on the due date:

• NACH mandate: you authorise the lender once, by e-mandate (net banking or debit card) or on paper. Each debit carries a mandate reference number (UMRN).
• UPI AutoPay: a recurring mandate you approve in your UPI app.

Keep enough balance a day before the due date. Since the lender has no account of yours, an NBFC loan's EMI is always debited from your bank account.

If you miss an EMI

• Bounce charge from your bank for the failed debit, as per its schedule of charges. See NACH bounce.
• Penal charges from your lender. Since 1 Apr 2024, RBI rules say a penalty must be a fixed "penal charge", not extra "penal interest" added to your rate, and no interest may be charged on it. It must be reasonable, disclosed in the loan agreement and KFS, and told to you whenever it is levied.
• Interest keeps running on the unpaid amount as per your loan agreement.
• Credit report: lenders report defaults and days past due (DPD) to credit bureaus (CICs). They must send you an alert by text message or email when they report a default or DPD, where your contact details are on record. A record of late payment can affect future loan applications.

Credit card EMI and "no-cost EMI"

Card issuers can convert a purchase or your outstanding into EMIs. RBI's credit card rules require that, before conversion, the issuer clearly shows the principal, the interest and any upfront discount by the merchant or issuer that makes it "no cost". These must also appear separately on your card statement.

• An EMI with an interest component must not be disguised as zero-interest or no-cost EMI.
• As far back as 17 Sep 2013, RBI noted that in zero percent EMI schemes the interest is often hidden as a processing fee. So compare the total you pay with the cash price, including processing fee and GST on it.

Safety tips

• Your lender will never ask for your card PIN, OTP or UPI PIN to "restructure" or "pause" an EMI.
• Pay only into your loan account, through the lender's official app, website or branch, never to an individual's account or a UPI ID sent by a caller.
• Approve a UPI AutoPay or e-mandate only for a lender you recognise, and check the amount and frequency.
• Lost money to a fraud call? Call 1930 or report at cybercrime.gov.in.

History of EMI rules in India

1. 7 May 2014

   RBI bars banks from charging foreclosure or pre-payment penalties on floating-rate term loans to individuals.

2. 1 Oct 2019

   Banks' new floating-rate retail loans must be linked to an external benchmark such as the repo rate, reset at least every three months.

3. 27 Mar 2020

   COVID-19 relief: lenders may give a three-month moratorium on instalments due from 1 Mar to 31 May 2020. On 23 May 2020 it is extended to 31 Aug 2020. Interest kept accruing during the moratorium.

4. 18 Aug 2023

   RBI issues rules on reset of floating rates on EMI loans: choices at reset, immediate intimation and quarterly statements, for all loans by 31 Dec 2023.

5. 1 Apr 2024

   Penal charges replace penal interest for fresh loans.

6. 1 Oct 2024

   Key Facts Statement with APR becomes mandatory for all new retail and MSME term loans.

7. 1 Oct 2025

   Offering a switch to a fixed rate at reset becomes the lender's option.

8. 1 Jan 2026

   Pre-payment Charges on Loans Directions, 2025 take effect, covering banks and NBFCs.

9. 7 Oct 2026

   Repo rate set at 5.50%.

FAQs